Concepts - Merit/Excellance Flashcards
How does the Accounting entity concept get applied to Jo paying home electricity from Jo’s Music Store?
The financial affairs of Jo’s music store are kept separate and distinct from the financial affairs of Jo.
When preparing the Income Statement only Business income and Expenses are included. Owner’s personal home electricity are recorded as Drawings in the Equity Section of the Statement of Financial Position.
How does the Accounting entity concept get applied to Jo taking an office computer of Jo’s music store for his daughters use?
The financial affairs of Jo’s music store are kept separate and distinct from the financial affairs of Jo.
When preparing accounting records of a business we only include the business transactions and exclude those of the owner.
When preparing the statement of financial position only business assets and liabilities are included.
Jo taking the computer home is now a personal asset and is recorded as drawings in the equity section of the statement of financial position.
Jo imported two pianos to sell in Jo’s music store. They cost $1000 USD each. Explain how the monetary concept is applied to this transaction.
Financial transactions must be measured in a common currency such as $NZD for New Zealand Businesses. Jo’s music store would convert the two pianos purchased at $1000 USD each to New Zealand currency
Looking at the Income Statement of Jo’s music store how is the monetary concept applied?
Financial transactions must be measured in a common currency such as $NZD for New Zealand Businesses.
Only financial transactions are shown in $ amounts. This is seen by $ signs on each column of the report of Jo’s music store.
How does the accounting entity concept get applied to Jo introducing her personal car into the business?
(Introducing an asset)
The financial affairs of Jo’s Music store are kept separate from the financial affairs of Jo
When preparing accounting records of a business we only include the business transactions and exclude those of the owner.
When preparing the statement of financial position only business assets and liabilities are included. Jo introducing a private car to the business is recorded as an increase in equity- assets introduced. The assets of Jo’s music store increases.
Jo wants to record the excellent service of her business as goodwill. Explain the concept that does not allow this to happen?
The Monetary Measurement concept states that Financial transactions must be measured in a common currency such as NZD for New Zealand businesses.
Therefore goodwill for excellent service cannot be expressed in money values, backed up with a source document, it will not be recorded in the accounting records of Jo’s Music store.
There is a limitation of the financial statements- they do not record non-financial information
How does the accounting entity concept get applied to Jo paying home electricity from Jo’s music store?
(Taking an expense out)
The financial affairs of Jo’s Music store are kept separate from the financial affairs of Jo
When preparing accounting records of a business we only include the business transactions and exclude those of the owner.
When preparing the Income Statement only business income and expenses are included. Jo’s personal expenses (Home electricity) are recorded as drawings in the Equity section of the statement of financial position.
Jo’s music store’s financial reports are divided into accounting periods. Explain to Jo how the Reporting Period concept is applied to her business.
The lifetime of Jo’s music store is divided into nominated time periods of equal length, usually a year. This allows the Jo and other users to make comparisons of financial performance and position of Jo’s music store from one period to another.
Jo can identify financial trends to assist in decision-making e.g. is there enough profit to expand the business - Jo’s Music Store
Jo’s music store has purchased a computer for $5000. Jo has had the computer revalued at $1000 as it is now quite old what value will be shown in the financial statements?
The financial reports are prepared on the assumption that the life of the business is expected to continue into the foreseeable future.
Hence assets, of Jo’s Music Store particularly Plant Property and Equipment, are valued at historical cost in the Statement of Financial Position.
Users will know for certain what they were purchased for. They can make their own decisions on their market value. The computer will be recorded at its historical cost of $5000.
What would happen to the assets of Jo’s music store if the Going Concern concept did NOT apply?
The financial reports are prepared on the assumption that the life of the business is expected to continue to operate into the foreseeable future.
If Jo’s music store is not a Going Concern then the Historical Cost does not apply. Assets must be valued at Market Value. All the Assets will all be classified as Current Assets.
The computer will be valued at it’s market value of $1000. Not at it’s Historical Cost of $5000.
How does the recording prepaid insurance $500 in Jo’s Music Store meet the accruals concept?
Prepaid insurance $500 is recognised when it occurs and is recorded and reported in the financial reports of Jo’s Music Store of the period to which it relates.
Prepaid insurance $500 is added as a current asset in the Statement of Financial Position
In the Income Statement Administration Expenses - Insurance will decrease by $500 This is because it relates to the next accounting period.
Jo’s Music Store is owed Dividends of $300 which will be received the next financial year. How will the accruals basis be applied to this example?
Dividends owing $300 is recognised when it occurs and is recorded and reported on in the financial reports of Jo’s Music Store for the period to which it relates.
Dividends owing $300 is recorded as an Accrued Income increasing. A current asset in the Statement of Financial Position.
In the Income Statement, other income, Dividends received will increase by $300. This is because it relates to this accounting period.
How will Jo’s Music Store deal with wages owing $300 using the Accruals concept?
Shop Wages Owing $300 is recognised when it occurs and is recorded and reported in the financial reports of Jo’s Music Store of the period to which it relates.
Shop Wages Owing $300 is added as a current liability in the Statement of Financial Position as an Accrued Expense
In the Income Statement Distribution Expenses - Shop Wages will increase by $300 This is because it relates to this accounting period.
Jo’s Music Store rents part of the store to a piano tuner. The piano tuner has paid $600 rent in advance
Rent received in advance $600 is recognised when it occurs and is recorded and reported in the financial reports of Jo’s Music Store of the period to which it relates.
Rent received in advance $600 is added as a current liability in the Statement of Financial Position as Income Received in Advance.
In the Income Statement Other Income - Rent received will decrease by $600 This is because it relates to the next accounting period.
